An Experimental Study On the Impact of Active Trading to Investment Portfolio Performance

Abstract

This study aims to explore the impact of active trading activities to the performance in the short-run. Using EquitySim, a virtual trading platform, a group of students are assigned an initial portfolio in financial sector based on the holdings of financial Select Sector SPDR Fund (XLF). Over an 8-week span, students are divided into two groups, where one group is required to have at least 10% turnover rate per week while the other is limited to 1% or less. To check the variability of the results, two groups will switch the objective after 4 weeks. That is, each group will have 4-weeks of active trading and 4-weeks passive trading. This experiment is designed to test the hypothesis that active trading causes higher volatility and lower expected returns on the portfolio. Thus, the returns and standard deviations of each students’ portfolio will be examined and summarized.